An important issue on the plate of the incoming president will be the next farm bill. Current farm programs run through September 2018, and farm bill supporters are already making plans to extend and expand them.

The durability of farm programs over the decades encapsulates just about everything that’s wrong with Washington. The programs make no economic or environmental sense. They subsidize higher-income households, including billionaires. They run directly counter to the American ethos of independence and rugged individualism. And they essentially turn proud rural businesspeople into cattle feeding at the subsidy trough.

Farm programs survive not because they make practical sense, but because Washington’s agenda is controlled by special-interest insiders exploiting a key flaw in our Madisonian system—logrolling. In a recent news story about the next farm bill, a top farm lobbyist basically admits that farm programs don’t have the votes to pass on the merits, so they are packaged in legislation with food subsidy programs to gain the support of urban legislators.

Nonetheless, there was a lot of talk about Washington corruption and cronyism on the campaign trail over the past year, so maybe the public will get fired up to oppose welfare for the well-to-do in the upcoming farm bill.

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

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No one doubts that much of the West, especially California, has been very droughty since the turn of the century, and that heat and drought are highly correlated. So it seemed surprising that it was big news last week that forest fires, which require dry fuel, are on the increase out there.

University of Idaho’s John Abatzoglou and Columbia’s A. Park Williams used a large family of climate models to calculate various indices of western aridity (they used eight different measures), which were then related to the burned-out area every year. About half of the increase since the mid-1980s was related to climate-modelled warming. The other half, they say, was from other causes, including natural variability. The authors also note that some forest management practices may be contributing to the increasing burn.

The notion that this much drying is caused by dreaded global warming is what made the papers.

Should we use models that can’t even get close to the real-world evolution of lower atmospheric temperatures in recent decades to determine how much climate change is human-caused? That’s what they did—assuming only warming that was not modelled was “natural.” To say the least, that’s a heavy logical lift when it is so clear that the models are predicting far too much warming in the lower layers.

It is all too human to not let some else’s work get in the way of your confirmation bias. So there’s no mention of another explanation for why it’s so hot and dry there. Writing in the same journal that the fire work was published in, the Proceedings of the National Academy of Sciences (PNAS), two other western researchers, James Johnstone and Nathan Mantua, demonstrated that virtually all of the temperature changes in California and the West are related to changes in atmospheric pressure patterns that occur with or without global warming. That was first published in 2014, but there is no reference to it whatsoever in the fire paper.

Nor is there any reference to the most comprehensive study of western fires—some 33,000 of them—by Argentina’s Thomas Kitzberger showing that for centuries the distribution and frequency of western fires is related to well-known atmospheric patterns over both the North Pacific and North Atlantic, not global warming. It too was published in PNAS, in 2007.

But we digress. Aridity is largely driven by temperature (warmth) and precipitation. Unfortunately, only two of their eight measures of dryness are very sensitive to rainfall variability.

Climate models have pretty much no skill in estimating precipitation. But they do predict warming, and western (particularly California and Arizona) temperatures are higher than they were. So, absent any precipitation data, they are guaranteed to paint a drying picture and therefore an increase in fire extent.

The six aridity indicators that are not particularly influenced by precipitation instead are primarily temperature-driven. Not surprisingly, these show much greater increases in aridity than the other two.

Here’s an example from the heavily forested northwest states of Idaho, Washington and Oregon. One of the aridity indicators is the Palmer Drought Severity Index (PDSI), an old warhorse that has been used to assess long-term moisture status since it was first published in 1965 by Wayne Palmer, a scientist at the (then) U.S. Weather Bureau.

Our first figure shows the relationship between observed summer temperatures and the PDSI. Note that the more negative the PDSI is, the more droughty it is, and vice-versa for wetness.

In this area, about twice as much of much of the PDSI behavior is predicted by rainfall than by temperature.

A different situation obtains as one moves further south, with temperature more important because it doesn’t rain very much in the period we are looking at here (summer). In droughty California any significant summer rain aside from occasional mountain thunderstorms is usually front-page news. If you average across the entire area, the contributions of the two predictors are pretty much equivalent.

If dryness is driven both by temperature and precipitation, and we can’t predict the latter, then climate models guarantee a positive relationship between climate change and fire in a warming world. This is exactly what this paper shows. Is such a prescribed result actually news?

References:

Abatzogloua, J. T. and A. P, Williams, 2016. Impact of anthropogenic climate change on wildfire across western US forests. Proceedings of the National Academy of Sciences, doi:10.1073/pnas.1607171113.

Johnstone, J. A. and N. J. Mantua, 2014b. Reply to Abatzoglou et al.: Atmospheric controls on northwest United States air temperatures, 1948–2012, Proceedings of the National Academy of Sciences, 111, E5607–E5608.

Democratic Vice Presidential nominee Tim Kaine suggested in the debate last week that a Clinton administration would address Social Security’s unsustainable fiscal trajectory by “focusing primarily on the payroll tax cap,” increasing it substantially from its current ceiling of $118,500. Proposals along these lines portray raising the tax cap as a way to address the rapidly deteriorating fiscal health of the program by enacting a modest tweak that would simply return the program to the way it has always operated, and that this additional tax burden would fall solely on high-earners. However, the current cap is not significantly out of line with the program’s historical experience, and the U.S. has a relatively high taxable maximum compared to many peers. These factors, along with the resulting adverse economic consequences and the need for further increases in the future, illustrate why the focus on this aspect of reform is misplaced.

It’s certainly true that at some points in the program’s history, a significant portion of workers had earnings above the tax cap, but this was in the earlier years of the its operation when more than a quarter of workers were above it. Over the past 30 years this share of workers has fluctuated in a narrow band around 6 percent.

Looking at it another way, the percentage of total earnings that are subject to the tax was 82.7 percent in 2014. While this is slightly below the high point in the early 1980s, it is just below the average since 1950.

So in neither of these comparisons has there been a recent drastic departure from the past history of Social Security: both the percentage of earnings covered and the percent of people with earnings below the cap are broadly in line with historical averages.

It’s also not the case that the United States is some outlier in the international landscape. Compared to other major industrialized countries, the United States has one of the higher caps.

Social Security Cap as a Percentage of Average Wage in Select OECD Countries

There are only four countries without a taxable maximum out of the 23 countries included in areport from the Organization for Economic Co-operation and Development (OECD), Czech Republic, Finland, Estonia, and Portugal. Of the remaining 19, the average taxable maximum for pensions was only 184 percent of the country’s average wage, far below the 264 percent in the United States. Italy was the only major country with a pension ceiling significantly above the United States in 2014, and countries so often cited as a model for their welfare states like Canada (106 percent) and Sweden (115 percent) had a ceiling barely above the average wage.

Substantially increasing the tax cap, or removing it completely, is far from the modest tweak that would be-reformers portray it as, and would be a significant and burdensome tax increase that would lead to a number of negative economic responses. And it’s not just “the rich” who will face these higher taxes: roughly 20 percent of current and future covered workers are projected to earn more than the taxable maximum at some point in their lives, and almost 40 percent of beneficiaries in 2050 ever earning above the taxable maximum aren’t in the highest quintile of lifetime earnings, according to projections from the Social Security Administration.

It is also very unlikely that the initial increase in the tax cap would be the final word because it would only be a stopgap measure, and significant annual cash flow deficits would return before long. These shortfalls would then require another round of reform, and more calls to either raise the cap further or increase the 12.4 percent tax rate. This is actually in line with the history of Social Security, albeit in an unfortunate way: a 1936 pamphlet from the Social Security Administration assured people that by 1949 the 6 percent total tax rate up to a cap of $3,000 per year would be “the most you will ever have to pay.”

Social Security is in serious need of reform and delays will only increase the magnitude of the changes needed, but raising or eliminating the payroll tax cap is the wrong way to go about it.

Last year we published a blog summarizing the research on how immigrants affect the crime rate in the United States. There are two major types of studies that examine this question.

The first uses Census data of the institutionalized population to investigate immigrant versus native incarceration rates. Although the Census evidence isn’t perfect because of potential issues with reporting immigration status and different types of incarceration, these studies show that immigrants are less likely to be incarcerated than similarly-aged natives. The second type is a macro-level or area study that looks at the crime rates in places that have experienced large waves of immigration. These generally find that immigration either lowers or has little effect on crime rates. The research on unauthorized immigrant crime rates is poor.

A few recent papers recently extended these findings. The first by David Green seeks to determine whether immigrants affect violent and drug-related crime in the United States on the state-level. It looks at state-level rates of violent crime and drug arrests pooled for the 2012-2014 years against pooled statistics on foreign-born and Mexican nationals by immigration status, specifically legal versus unauthorized immigrants. Green finds no association between immigrant population size and increased violent crime. However, he does find a small but statistically significant association between unauthorized immigrant population size and arrests for drug offenses.

The second by criminologists Biana Bersani and Alex Piquero investigated whether immigrants are less crime-prone than natives because immigrants are less likely to report crimes. If it was true that immigrants were less likely to report crimes and most of the victims of immigrant-crime were other immigrants, then the real immigrant crime rate could be much higher than the data is revealing due to a lack of reporting. This would also increase their relative crime rates compared to second-generation and other U.S.-born Americans who are more likely to report crimes.

On its surface, this theory has some appeal because immigrants are generally weary of dealing with government authorities that subjected them to this bureaucratic monstrosity – especially if they are unauthorized. Bersani and Piquero analyzed data from a 7-year longitudinal study called Pathways to Desistance that logged the respondents’ immigration status, age, self-reported criminal and arrest records, and official criminal and arrest histories. They found no systematic difference between the self-reported and official criminal and arrest histories of the respondents by immigrant generation. Although not conclusive, this should strongly bias us against the notion that the low-levels of reported immigrant criminality are not based on reporting differences. The evidence of low immigrant criminality continues to grow.

On Friday, the U.S. Court of Appeals for the Seventh Circuit handed down a pair of rulings rejecting the argument that taxi companies somehow have a protected property right in their monopolies. The opinions—both penned by Judge Richard Posner—are perhaps the courts’ strongest rebuke yet of taxi cartels’ desperate attempts to stay relevant in an Uber world, with Posner describing their claims as having “no merit” and “border[ing] on the absurd.” It’s nice to know that—in the Seventh Circuit at least—losing your monopolistic cartel due to technological disruption is not considered to be a constitutional violation.

In one case, Illinois Transportation Trade Association v. City of Chicago, incumbent taxi companies sued Chicago for allowing app-based ridesharing companies such as Uber and Lyft to operate, asserting that the city’s decision to allow such companies to enter the market without being subject to the same regulations covering traditional taxis constituted an unconstitutional taking of their property without just compensation (and also somehow violated the Fourteenth Amendment’s Equal Protection Clause).

In the other case, Joe Sanfelippo Cabs, Inc. v. City of Milwaukee, taxi companies sued Milwaukee for eliminating the hard cap on the number of taxi medallions in circulation, opening the market up to any applicant who met the requirements. Like in the Chicago case, the plaintiffs argued that the loosening of regulations to allow new market entrants violated the Takings Clause.

In both cases, the plaintiffs’ arguments more-or-less boiled down to: “We made a deal with the city years ago where we were promised monopoly control over this market. The government’s failure to protect that monopoly constitutes an eminent domain-style taking.” This is, of course, as the court described, an absurd argument. “‘Property’ does not include a right to be free from competition. A license to operate a coffee shop doesn’t authorize the licensee to enjoin a tea shop from opening.” No one is entitled to a government grant of monopoly power.

We commend the Seventh Circuit for recognizing these complaints for what they really were: attempts by rent-seeking insiders, angry that their outdated business model (built on a foundation of political patronage) is imploding, to force local governments to maintain increasingly indefensible barriers to entry by entrepreneurial outsiders. The court should also be applauded for recognizing that the issues here are of far broader application than the taxi industry. Our economy depends on constant innovation – and that sort of innovation can’t occur when governments allow themselves to be used by existing businesses to shield themselves from competition. As Judge Posner explains:

[W]hen new technologies, or new business methods, appear, a common result is the decline or even disappearance of the old. Were the old deemed to have a constitutional right to preclude the entry of the new into the markets of the old, economic progress might grind to a halt. Instead of taxis we might have horse and buggies; instead of the telephone, the telegraph; instead of computers, slide rules. Obsolescence would equal entitlement.

Friday’s decisions—the first time a federal appellate court has weighed in on the ride-sharing revolution—represent an important victory for free markets over entrenched rent-seekers, but are by no means the final word on the issue. Courts hearing similar cases over the coming months and years should follow the Seventh Circuit’s example – and local governments should continue giving taxi (and other) cartels reasons to be upset.

I wrote only yesterday about the Consumer Financial Protection Bureau’s (CFPB’s) regulatory overreach with regard to payday loans, and it seems the D.C. Circuit Court was on the same wavelength. Judge Brett Kavanaugh, writing for the court, handed down a stinging condemnation of the Bureau’s structure, labeling the single-director model unconstitutional. Although the court’s remedy is somewhat limited – changing the agency from independent to one within the executive branch, with the director serving at the pleasure of the President – the opinion itself is a full-throated indictment of the CFPB’s structure and repeated overreach. Even given its limited application, it is a win for those who have long questioned the many defects in the CFPB’s design.

The case before the court arose out of an enforcement action brought by the CFPB against the mortgage lender PHH Mortgage. The action was initially brought before one of the agency’s own in-house adjudicators, who imposed a fine on the company. (Although not explicitly addressed in this case, these internal administrative proceedings, led by administrative law judges or ALJs, present their own issues, similar to those at the SEC that I have discussed here and here.) Director Richard Cordray apparently thought the $6.4 million fine imposed by the ALJ was insufficient and added another $102.6 million to the bill. PHH Mortgage appealed the Director Cordray’s decision to the D.C. Circuit.

The court’s decision turns principally on the magnitude of the director’s power. Unlike the heads of agencies such as the Department of Justice or Department of the Treasury, the director of the CFPB can be removed by the President only for cause. That is, the President could remove Cordray only for inefficiency, neglect of duty, or malfeasance. In fact, the court called the Bureau’s director the “single most powerful official in the entire United States Government, at least when measured in terms of unilateral power” after the President himself. And the President is at least accountable to the people through the democratic process. Other powerful positions within the federal government – Speaker of the House, Senate Majority Leader, heads of other independent agencies – have greater checks on their power. The Speaker cannot act without persuading and cajoling a large number of colleagues. Independent agencies such as the SEC and FTC are comprised of multi-seat commissions, and no one commissioner can act alone, making the commissioners themselves the checks on each other’s power. The director of the CFPB faces no such constraints.

The lack of constraint alone would make the CFPB’s structure a problem. But this power has not lain idle. Instead, the CFPB has sought to extend its reach not only beyond the bounds expressly set for it in its authorizing statute, but has also trespassed on basic principles of due process. Despite years of precedent established by the Department of Housing and Urban Development (HUD), the CFPB in this case decided it would interpret a key statutory provision differently. It was within the CFPB’s authority to issue a new interpretation, but the Bureau didn’t take this path. Instead, it elected to simply apply its new interpretation to PHH Mortgage, bring an enforcement action against the company, and then apply its interpretation retroactively, deeming culpable conduct that the company could not have known the Bureau would find illegal. If Congress is constitutionally barred from passing ex post facto laws, surely an agency is similarly barred; due process forbids it. And this is what the court found, noting that the “CFPB violated bedrock due process principles by retroactively applying its new interpretation of the statute against PHH.” (emphasis in original)

Although PHH argued for the dissolution of the CFPB and indeed for the court to strike down Dodd-Frank in its entirety (since the Dodd-Frank Act created the agency), the court rightfully refused to take such a drastic step. Many would welcome an end to both, but the judiciary should not strike down laws lawfully passed by the legislature unless absolutely necessary. In this case, the court found that it could remedy the constitutional defect by requiring that the director serve at the will of the President, and that is an appropriately limited position for a court to take. The case was therefore remanded to the CFPB for reconsideration.

To the extent it exists, the CFPB, as others have argued, should be turned into a commission with several commissioners, from different political parties, each bringing his or her own views and insights to the regulatory process. The CFPB’s funding should come through the appropriations process, which would impose a congressional check on its power, and not through a demand made of the Federal Reserve as is currently the case. While Judge Kavanaugh’s opinion makes no such sweeping changes, it moves the needle a little bit closer to accountability, due process, and constitutional soundness. For now, I’ll take it.

Beginning in the 1970s and 1980s, the federal government (as well as other governments around the world) began to adopt policies based on the idea that crime could be reduced if you somehow could make it very difficult for criminals to use the money they illegally obtain. So we now have a bunch of laws and regulations that require financial institutions to spy on their customers in hopes that this will inhibit money laundering.

But while the underlying theory may sound reasonable, such laws in practice have been a failure. There’s no evidence that these laws, which impose heavy costs on business and consumers, have produced a reduction in criminal activity.

And now we have even more evidence that these laws don’t make sense. In a thorough study for the Heritage Foundation, David Burton and Norbert Michel put a price tag on the ridiculous laws, regulations, and mandates that are ostensibly designed to make it hard for crooks to launder cash, but in practice simply undermine legitimate commerce and make it hard for poor people to use banks.

Oh, and these rules also are inconsistent with a free society. Here are the principles they say should guide the discussion.

The United States Constitution’s Bill of Rights, particularly the Fourth, Fifth, and Ninth Amendments, together with structural federalism and separation of powers protections, is designed to…protect…individual rights. The current financial regulatory framework is inconsistent with these principles. …Financial privacy can allow people to protect their life savings when a government tries to confiscate its citizens’ wealth, whether for political, ethnic, religious, or “merely” economic reasons. Businesses need to protect their private financial information, intellectual property, and trade secrets from competitors in order to remain profitable. Financial privacy is of deep and abiding importance to freedom, and many governments have shown themselves willing to routinely abuse private financial information.

And here are the key findings about America’s current regulatory morass, which violates the above principles.

The current U.S. framework is overly complex and burdensome… Reform efforts also need to focus on costs versus benefits. The current framework, particularly the anti-money laundering (AML) rules, is clearly not cost-effective. As demonstrated below, the AML regime costs an estimated $4.8 billion to $8 billion annually. Yet, this AML system results in fewer than 700 convictions annually, a proportion of which are simply additional counts against persons charged with other predicate crimes. Thus, each conviction costs approximately $7 million, potentially much more.

By the way, the authors note that their calculations represent “a significant underestimate of the actual burden” because they didn’t include foregone economic activity, higher consumer prices for financial services, lower returns for shareholders of financial institutions, higher financial expenses for unbanked individuals, and other direct and indirect costs.

And what are the offsetting benefits? Can all these costs be justified?

Hardly. David and Norbert point out that we’re all paying more and getting very little in return for the higher burdens.

The original goal of the BSA/AML rules was to reduce predicate crimes, such as illegal drug distribution, rather than money laundering itself. Judged by this standard, very little empirical evidence suggests that the rules have worked as designed. In fact, even though BSA/AML rules have been expanded consistently throughout the past four decades, it remains difficult to discern any net benefit of the overall BSA/AML regulatory framework. Even though there is no clear evidence that the rules materially reduce crime, the BSA/AML bureaucracy began relentlessly expanding internationally—primarily through the Financial Action Task Force (FATF)—more than two decades ago. One comprehensive study reports that even though the FATF proceeds as if these rules have produced only public benefits, “[t]o date there is no substantial effort by any international organization, including the International Monetary Fund, to assess either the costs or benefits of” this regulatory framework. In fact, BSA/AML regulations have been sharply criticized as a costly, ineffective approach to reducing crime. …compliance costs are high for financial companies, with a disproportionate burden falling on smaller firms…, where hiring even one additional employee can lower the return on assets by more than 20 basis points. Other research suggests that the increasing compliance burden in the banking industry is at least partly responsible for the trend toward consolidation and the disappearance of smaller banks. …an American Bankers Association (ABA) publication highlights a small bank that reports it has to dedicate more than 15 percent of its employees to compliance-related tasks. An ABA survey also suggests that the cumulative cost associated with compliance has caused banks to offer fewer services and raise fees, thus harming consumers. …the BSA/AML regime has been a highly inefficient law enforcement tool. At the very least, a high degree of skepticism about further expansion of these and similar requirements is in order. Given the billions of dollars spent annually by the private sector on the existing elaborate and costly AML bureaucracy, a serious data-driven cost-benefit analysis of the existing system is warranted.

Let’s expand our look at the issue. The Wall Street Journalnotes that the current approach has myriad negative consequences as banks sever relationships with customers (in a process called “derisking”) because they don’t want to deal with the hassle, expense, and liability of money-laundering red tape.

…financial firms, faced with strict penalties over counterterror and anti-money-laundering rules, have severed accounts of thousands of customers in recent years over fears of heightened risk. The consequences of shuttered accounts were detailed this week in a Wall Street Journal investigation showing how money-transfer firms whose bank accounts have been closed have been pushed out of the global banking system. In addition, nonprofit organizations operating in Syria and Lebanon have faced challenges after losing their bank accounts. …In February of this year, more than 50 nonprofits asked the U.S. Treasury to publicly affirm that nonprofit organizations aren’t inherently high risk. …Two studies by the World Bank in late 2015 found that money-service businesses—which include money transmitters—and foreign banks were both seeing account closures at increasing rates.

Amen.

This process has made life much more difficult for people and businesses seeking to engage in legitimate commerce.

Another report from the WSJ explains that the rules actually make it harder for law enforcement to monitor the people who might actually be doing bad things.

U.S. banks have closed thousands of accounts held by people and organizations considered suspicious, high-risk or difficult to monitor—including money-transfer firms, foreign banks and nonprofits working abroad. Closing accounts for fear their customers may be up to no good evicts from the financial system the innocent as well as those the U.S. government would most like to watch, a consequence not anticipated by Washington. Comptroller of the Currency Thomas Curry this month acknowledged the potential danger. “Transactions that would have taken place legally and transparently may be driven underground,” he told an international conference of bankers and regulators in Washington. …Fearing steep financial penalties for failing to spot a wayward customer, many banks now shun anyone who looks risky. That leaves ostracized companies to seek alternatives—such as toting bags of cash overseas—a practice that allows hundreds of millions of dollars to leave the global banking system… “The whole flow of money goes underground, and that becomes counterproductive to the original purpose of being able to track” it, said Dilip Ratha, head economist of the World Bank’s unit that studies remittances. “It’s a bit paradoxical.” U.S. officials said they didn’t intend banks to close whole categories of customer accounts.

Risky accounts should be managed, officials said, not avoided altogether. …Western Union said it now spends $200 million a year watching for suspicious activity… J.P. Morgan Chase & Co….now has about 9,000 employees dedicated to anti-money-laundering and has cut off thousands of customers viewed as higher-risk. …Jaikumar Ramaswamy, a Bank of America Corp. compliance executive and former federal prosecutor, said, “I’m surprised at how much of my time is spent not focusing on the guilty but chasing the innocent.” Instead of looking for needles in haystacks, he said, the system demands banks “turn over every piece of hay.”

Sigh.

Here’s a novel idea. Why doesn’t law enforcement engage in actual, old-fashioned police work. In other words, instead of having costly burdens imposed on everybody, governments should use the approach which historically has successfully reduced crime - i.e., policies that increase the likelihood of apprehension and/or severity of punishment.

But don’t hold your breath waiting for that to happen.

Instead, we actually get politicians and policy makers coming up with schemes to expand the burden of money laundering laws. Some of them want to ban the $100 bill, or perhaps even ban cash entirely. All so government can more closely monitor the private financial choices of innocent people.

If you want more information, here’s a video I narrated on this topic for the Center for Freedom and Prosperity.

Last but not least, let’s return to the Heritage study, which includes this very important warning about a very risky and dangerous treaty that may be considered by the U.S. Senate.

…the willingness to impose costs on the private sector and to violate the privacy interests of ordinary people should be less in the case of information sharing for tax purposes than for the purposes of preventing terrorism or crime. Moreover, tax-information-sharing programs are quite often a veiled attempt to stifle tax competition from low-tax jurisdictions. Tax competition is salutary and limits the degree to which governments can impose unwarranted taxation. …The U.S. Senate is currently considering the “Protocol Amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters,” which would impose a wide variety of new information-reporting requirements on financial institutions to help foreign governments collect their taxes. A second treaty—worse than this protocol—is the follow-on OECD treaty known as the “Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.” This follow-on treaty implements both the protocol and the 311-page OECD “Standard for Automatic Exchange of Financial Account Information in Tax Matters.” Together, the protocol, the Multilateral Competent Authority Agreement, and the OECD Standard constitute the three main parts of a new automatic information-exchange regime being promoted by the OECD and international tax bureaucrats. If the U.S. ratifies the protocol and implements the new OECD standard, Washington would automatically, and in bulk, ship private financial and tax information—including Social Security and other tax identification numbers—to Argentina, China, Colombia, Indonesia, Kazakhstan, Nigeria, Russia, and nearly 70 other countries. In other words, foreign governments that are hostile to the U.S., corrupt, or have inadequate data safeguards, would automatically have access to private financial (and other) information of some U.S. taxpayers and most foreigners with accounts in the U.S.

P.S. Since we closed by discussing the intersection of tax and money laundering, I should point out that statists frequently demagogue against so-called tax havens for supposedly being hotbeds of dirty money, but take a look at this map put together a few years ago by the Institute of Governance and you’ll find only one low-tax jurisdiction among the 28 nations listed.

Donald Trump always sounded just like a Bernie Sanders Democrat when talking about international trade. “We have one issue that’s very similar,” he said, “and that’s trade.” That Trump-Sanders hostility to trade liberalization, in turn, is identical to that of the AFL-CIO and the Economic Policy Institute, a leftist think tank created and largely financed by labor unions.

It should be no surprise that Donald Trump’s most influential adviser and spokesman on international trade, Peter Navarro, is a former unsuccessful Democrat politician who seems closer to an old-style Bernie Sanders leftist Democrat than to a Bill Clinton “New Democrat.”

The only academic among Trump 13 economic advisers, Navarro returned to being an economics professor at U.C. Irvine, after losing San Diego mayoral election to Republican Susan Golding. In 1993 Navarro wrote the book, Bill Clinton’s Agenda for America.

With one caveat, the book was full of glowing praise for everything Clinton promised to do – notably lots more federal spending (which, ironically, fell substantially).

Navarro’s doubts about Clinton concerned NAFTA, which Bush created but Clinton promised to change. “I thought the NAFTA agreement ought to have been more properly called ‘SHAFTA,’” says Navarro. But he notes that “candidate Clinton later acknowledged the problems of the environment and lost jobs raised by NAFTA, and called for wage safeguards and stricter environmental regulations. It remains to be seen whether this was merely rhetoric, or a serious concern that will have policy follow-through.”

Putting NAFTA aside, giving Clinton the benefit of doubt, Navarro concluded, “if Clinton and Gore carry through with their agenda … we will become more globally competitive, our educational system will improve, better protection will emerge for our environment, our cities will be rebuilt, and, most important of all, hundreds of thousands of jobs will be created.”

Navarro dismissed Reagan’s seven years of 4.4% annual GDP growth as “The Failure of Reaganomics” and the “Trickle Down Rip-Off.” He thought Reagan spent far too much on Defense. Maybe so, but that helped dissolve the USSR which later made it easy for President Clinton to spend much less.

Navarro was almost as fearful of Japanese industrial dominance in 1993 as he now is of China. For some reason (perhaps the United Auto Workers), he even worried Japan would “locate many of their plants within U.S. borders to avoid the certain protectionism they saw coming.”

The way to beat such winners, he argued, was for the U.S. to become more protectionist and dirigiste. “Countries like Japan, Germany, France and Taiwan have very sophisticated industrial policies,” wrote Navarro, while “Reagan and Bush Administrations… [were] clinging to a free-trade philosophy.” Without a protectionist industrial policy and generous grants and subsidies the U.S. couldn’t possibly compete, since “Japan and Germany were devoting over 10 times what the U.S. was spending on public infrastructure and new technologies.”

“The essence of a national industrial policy,” Navarro explained, “is a full partnership between government and business… [T]he role of government is to help a nation’s businesses compete by providing technological assistance, subsidies and protectionist measure such as tariffs and quotas.” In other words, Crony Capitalism - an open invitation to mass corruption.

Industrial policy advocate Peter Navarro may now seem a peculiar choice to advise a Republican presidential contender, but such peculiarity is not unprecedented.

Bob Dole’s adviser was the loyal Democrat, Mark Zandi. He’s the so-called “independent expert” mentioned by Hillary Clinton in the first debate, and he’s the loyal hyper-Keynesian Democrat who predicted wondrous results from Obama’s “stimulus” scheme. Zandi is also the nameless “leading private forecasting firm” who’s most responsible for the Obama team’s infamously wrong Romer-Bernstein forecast of January 2009.

Dole didn’t do so well by turning to a Democrat ideologue for economic advice. That lesson was apparently lost on Mr. Trump.

Despite professing a desire for “financial inclusion,” usually understood as better access to financial products for lower income people, the Consumer Financial Protection Bureau (CFPB) has taken aim at a product used extensively by low- and moderate income Americans: the short-term, low value loans known as “payday” loans. What is even more striking about the proposed rule, however, is the fact that it works as an end-run around an express limit on the CFPB’s power. The CFPB has spent its short life pushing the bounds of its authority in numerous directions, going so far as to incur a slap from a federal court when it trod on the toes of another agency. The CFPB could be excused for thinking that at least some members of Congress desired such expansion, given the broad and amorphous authority the Dodd-Frank Act grants the new agency. But it is hard to justify evading an express prohibition.

Although the CFPB is given the authority to proscribe unfair, deceptive, and abusive practices, the Dodd-Frank Act explicitly withholds from the CFPB the authority to “establish a usury limit.” The proposed rule does not set a rate cap, but it does make lending at any rate above 36 percent so onerous as to be infeasible. In fact, it is not clear that it would be even be possible to comply with the rule.

On Friday, I submitted a letter to the CFPB, expressing concern over the agency’s authority to enact the rule as proposed. In particular, the letter notes that the underwriting process required for loans with an effective annual interest rate higher than 36 percent are not only onerous but require the lender to make determinations that may be impossible to make. For example, under the proposed rule a lender would be required to “forecast a reasonable amount of basic living expenses for the consumer – expenditures (other than debt obligations and housing costs) necessary for a consumer to maintain the consumer’s health, welfare, and ability to produce income[.]” This amount can be difficult for individuals to determine for their own households. My husband and I have an estimate we use to help us save for an emergency, but I couldn’t swear to its accuracy given the vagaries of life with small children. I couldn’t guess what the right number might be for any other household in my acquaintance. If I am uncertain what my own family might need, it is difficult to see how a storefront lender could make this determination for a prospective borrower who walks in off the street. Certainly this level of underwriting, which surpasses even what is required for most mortgages, is not cost-effective for a loan of only a few hundred dollars.

If the “power to tax involves the power to destroy,” the power to regulate must carry the same destructive force. Since these heavy underwriting rules would apply only to loans made at a certain interest rate, It is difficult to view the proposed rule as anything less than an attempt to cap interest rates on short term, small dollar lending at 36 percent. And this the CFPB may not do.

Nor is the CFPB authorized to ban payday lending altogether and yet the rule is likely to do just that. There have been previous attempts to cap such lending at 36 percent. And the result was a significant decrease in the availability of short term, small value loans.

Congressional intent can be ambiguous. But in this case, Congress spoke clearly through Dodd-Frank: the CFPB cannot set interest rate caps. No, not even through clever rule-making. I have argued elsewhere that concern about the dangers of payday lending are misplaced, but even those who find payday lending to be distasteful should reject such naked overreach. This regulation should be scrapped.

Until the last few minutes of last night’s debate, Donald Trump had been the only candidate to talk about trade policy during the debates. At the first presidential debate, Clinton studiously avoided the topic even as Trump used Clinton’s past support for NAFTA and her flip-flop on the TPP to blame her for all the economic troubles he thinks trade has caused. At the vice-presidential debate, neither Mike Pence nor Tim Kaine offered any substantive remarks about trade policy.

Most of the second presidential debate followed the same pattern. Trump continued to complain unchallenged that America is losing because of our trade deficit and that Clinton is responsible because of NAFTA and the TPP.

But then in the second to last question of the debate, Trump finally evoked a response from Clinton when he stumbled into some remarks about China and the U.S. steel industry during a longer diatribe about coal and environmental regulations:

We have to bring back our workers. You take a look at what’s happening to steel and the cost of steel and China dumping vast amounts steel all over the United States, which essentially is killing our steelworkers and steel companies.

When it was Clinton’s turn to respond, here’s what she had to say:

First of all, China is illegally dumping steel in the United States and Donald Trump is buying it to build his buildings, putting steelworkers and American steel plants out of business. That’s something that I fought against as a senator and something I would have a trade prosecutor to make sure we don’t get taken advantage of by China on steel or anything else.

You’ll note that Clinton didn’t disagree with Donald Trump’s assessment or criticize his simplistic, zero-sum view of trade. Instead, she accused Trump of hypocrisy and complicity with the problem and highlighted her own record and promises to protect the steel industry.

I’ve written before about how Clinton’s own protectionist positions have made it impossible for her to refute Trump’s trade rhetoric. When confined to specifics, Trump’s trade policy proposals are very similar to what Clinton and other Democrats have been advocating for years.

Just like Trump’s efforts to tie Clinton to NAFTA, Clinton’s remarks about Trump and Chinese steel are likely meant to convince labor unions and Rust Belt voters that she will be a more sincere protectionist than her opponent.

Clinton’s plan to create a special “trade prosecutor” position is a curious proposal she has advocated for a long time. It was one of her trade policy talking points in 2008 and she’s mentioned it a number of times during this election cycle. It’s not clear to me what exactly a “trade prosecutor” would do. Bringing dispute settlement cases against foreign countries at the WTO is already a responsibility of the Office of the U.S. Trade Representative. She may want to bring more cases, but she hasn’t said why USTR would not be up to the task.

It’s also confusing that she connects the trade prosecutor proposal to “dumping” which is currently handled through a sophisticated legal process at the Department of Commerce, U.S. International Trade Commission, and federal courts. Cato scholars have written a lot about the myriad problems with America’s antidumping laws. To say the least, more antidumping duties are not going to help the U.S. economy.

If you’d like to learn more about the problem of global steel overcapacity and what the best U.S. response would be, I recommend reading this recent Free Trade Bulletin written by my colleague Dan Pearson or watching this Cato Policy Forum from last week. Spoiler: We don’t need more antidumping duties.

In last night’s presidential debate, policy issues were barely discussed among the conspiracy theories and scandal-mongering. But even the limited discussion of foreign policy highlighted a pretty strange fact: the Republican ticket effectively has two distinct foreign policy approaches. And though it’s hardly unusual for running mates to differ to some extent on issues – indeed, Hillary Clinton and Tim Kaine differ on some key foreign policy points – Trump’s statements last night, publicly repudiating his running mate’s proposals for Syria, were bizarre.

Despite his choice of vice presidential candidate, Trump and Pence have been largely at odds on foreign policy since day one. Trump’s approach to foreign policy is highly inconsistent but has certainly been unconventional. The GOP nominee advocates a militaristic, ‘America First’ foreign policy, but differs from GOP orthodoxy on key topics like Russia, the Iraq War, U.S. alliances, and trade. In contrast, Pence is a hawk’s hawk, supporting the war in Iraq, increases in defense spending, and further Middle East intervention. In 2005, then-Representative Pence even introduced a House Resolution which would have declared that President Bush should not set an ‘arbitrary’ date for the removal of troops from Iraq until nation-building was complete.

The result has been a curious dichotomy in the Republican ticket’s foreign policy proposals. At last week’s vice presidential debate, Pence ignored Trump’s prior foreign policy statements, advocating for intervention against the Assad regime, the creation of safe zones in Syria, and a substantially harder line against Russia. Yet last night, when moderators pushed Trump on these differences, the Republican presidential candidate bluntly rejected Pence’s stance, noting that “he and I haven’t spoken, and I disagree.” Trump then further contradicted his running mate, arguing for better relations with Russia, even refusing to attribute recent hacking incidents to Russia despite substantial evidence from the intelligence community on the issue.

To be sure, there are also some differences between candidates on the democratic side of the ticket. While Clinton has argued that the 2001 Authorization to Use Military Force gave President Obama the authorization to use military force in Libya and against ISIS, Tim Kaine has been an active Senate proponent of greater congressional oversight of foreign policy. In particular, Kaine has advocated for the repeal of the 2001 AUMF, and its replacement with a more narrowly tailored AUMF focused on ISIS. Yet the difference in opinion is largely procedural: Kaine supports Clinton’s proposals to create a safe zone or no-fly zone in Syria and the campaign against ISIS if properly authorized. At the same time, he has toned down his support for the Trans-Pacific Partnership to match Clinton’s newfound reticence on trade.

There has been little such accommodation on the Republican side of the contest, where Pence and Trump each seem determined to pursue their own distinct foreign policy agendas. This is concerning for several reasons. First, it is possible that Pence may be able to exert more influence on foreign policy than a typical vice presidential candidate. Before settling on Pence as his running mate, Trump reportedly told potential running mate John Kasich that he would be the most powerful vice president in history, running both domestic and foreign policy. Second, some conservatives have suggested that Trump has little interest in actually being president, and might well step down after his inauguration in favor of Pence.

Though there are strong reasons to doubt how restrained Trump’s foreign policy would be in reality – as well as substantive concerns about his temperament, and his connections to Russia – there is no doubt that Mike Pence’s foreign policy would be far less restrained. No matter how entertaining it may be to watch, therefore, the split in the Republican ticket offers little reassurance for those concerned about foreign policy during a Trump presidency.

You Ought to Have a Look is a regular feature from the Center for the Study of Science. While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic. Here we post a few of the best in recent days, along with our color commentary.

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This week we feature a few smart pieces by some smart folks.

First up is an excellent post “Climate Modeling: Settled Science or Fool’s Errand?” by Competitive Enterprise Institute’s Bill Frezza in which he discusses the development of climate models and the reliability of the future that they project. But Bill’s post is really just to provide some background for his Real Clear Radio Hour interview with Arizona State University’s Dr. Daniel Sarewitz, who is the co-director of ASU’s Consortium for Science, Policy, and Outcomes. Sarewitz has a lot of interesting things to say about “Big Science” and the problems that result. Frezza summarizes his interview:

Sarewitz, who was trained as an earth scientist, is terrified that “science is trapped in a self-destructive vortex” that is endangering both science and democracy. In his blockbuster analysis mentioned above, he nails his thesis to the laboratory door, challenging Big Science to get its act together. Politicizing science, he argues, leads to debates about science being substituted for debates about politics. So we end up fighting over unverifiable forecasts about what might happen in the future, rather than wrestling with the complex tradeoffs that attend political decisions on what we should – or could – do about carbon emissions under all the potential future scenarios.

But rather than get discouraged, Sarewitz believes there is a way out of this conundrum. His advice is, “Technology unites while science divides.” He recommends that science “abdicate its protected political status and embrace both its limits and its accountability to the rest of society.” Despite calling long-range climate forecasting “a fool’s errand,” he thinks dumping too much CO2 in the atmosphere will make anthropogenic global warming a long term problem that will eventually require the decarbonization of our energy industries. But he sees this as a process taking many decades, one that can be best addressed not with politicized science, but by letting adaptation, innovation, wealth creation, and economic growth lead the way.

If you have a free 20 minutes or so and are interested in how the quest for policy has derailed the pursuit of science, listening to Frezza’s full Sarewitz interview will be time well spent.

Next up is a post in which Institute For Energy Research economist Robert Murphy takes a look at a new report from R Street—a “A carbon bargain for conservatives”—in which R Street tries to tell conservatives that “[a] properly designed revenue-neutral price on carbon will improve economic efficiency, promote better environmental outcomes than existing policy and allow market forces to determine the course to a lower-carbon future.”

To which Murphy bluntly asks “What is the point of this exercise?” He elaborates:

It’s not as if President Obama or Gina McCarthy are making a substantive offer here. Rather, R Street’s proposal (and others like it) are fantasy land bargains from people with no political power in order to get conservatives and libertarians to abandon their opposition to a massive new tax. What is the point of this exercise?

…The typical progressive activist, and the typical administrator at the EPA, do not share [a] general admiration for the market economy. It is not as if the people of Greenpeace toss and turn at night, lamenting the Pareto inefficiencies in our economy and the fact that industry produces a bit above the “optimal” level of pollution. No, these people do not like capitalism, period, and think Americans are consuming too much.

…I’m glad to see that R Street’s energy analysts are admitting all of the tremendous problems with a carbon tax (such as leakage, the tax interaction effect, and the arbitrariness of the “social cost of carbon”), but they valiantly throw all of those concerns aside and still assume they can strike a deal with groups who are saying, in print, that they are not going to make such a deal. In closing, I simply repeat my initial reaction: I honestly don’t know what the point of these reflections is, except to weaken conservative and libertarian resistance to a massive new tax that R Street admits could bring in more than $1 trillion in the first ten years.

And finally, the Bipartisan Policy Center last week hosted a panel discussion which reviewed the Clean Power Plan’s recent day in court, including insightful commentary from participants from both sides of the argument. The discussion was moderated by Wall Street Journal energy reporter Amy Harder with panelists including David Doninger from National Resources Defense Council, Christophe Courchesne, chief of the Environmental Protection Division of the Massachusetts Attorney General’s office, Jeff Holmstead, former Assistant Administrator of the United States Environmental Protection Agency for Air and Radiation, and Allison Wood, attorney at Hunton & Williams, and who presented arguments in the case before the DC Circuit Court.

The panelists offered interesting thoughts about the issues which may decide the case and how they perceived that the judges received the arguments and what decision they may ultimately come to. We found the comments to be informative and to well-summarize (including key details) this important case.

The discussion was recorded by C-SPAN, which has made it available here. It’s long (at over an hour and a half) but is a good place to hear what those in the trenches are saying about the case. You ought to have a look.

Peter Navarro, a Professor at U.C. Irvine, is Donald Trump’s most influential adviser/spokesman on international trade, and the only academic among his 13 economic advisers.

After a losing campaign to become mayor of San Diego as an anti-NAFTA Democrat running against Republican Susan Golding, Navarro wrote a 1993 book, Bill Clinton’s Agenda for America. It provides intriguing clues about the sort of policy advice he now offers Mr. Trump.

Navarro begins by saying, “if Clinton and Gore carry through with their agenda … we will become more globally competitive, our educational system will improve, better protection will emerge for our environment, our cities will be rebuilt, and, most important of all, hundreds of thousands of jobs will be created.”

He goes on to write of “The Failure of Reaganomics” and the “Trickle Down Rip-Off.” The complaint is mainly about the U.S. spending too much on defense, with Japan financing the resulting budget deficits and aiming to “locate many of their plants within U.S. borders to avoid the certain protectionism they saw coming.”

“Countries like Japan, Germany, France and Taiwan have very sophisticated industrial policies,” wrote Navarro, while “Reagan and Bush Administrations… [were] clinging to a free-trade philosophy.” Without a protectionist industrial policy the U.S. couldn’t possibly compete, particularly since “Japan and Germany were devoting over 10 times what the U.S. was spending on public infrastructure and new technologies.”

“The essence of a national industrial policy,” Navarro explained, “is a full partnership between government and business… [T]he role of government is to help a nation’s businesses compete by providing technological assistance, subsidies and protectionist measure such as tariffs and quotas.”

Inequality and the “one percent” have generated an inordinate amount of media coverage recently, despite the fact that these topics barely register when people are asked to name the country’s most important problem. The rhetoric often portrays the wealthy as a homogenous group that inherited its wealth, and those that do work operate almost exclusively in the financial sector. A recent study published in Intelligence this year that was highlighted by Tyler Cowen delved into the characteristics of wealthy individuals. The findings run contrary to the commonly held perception that this is a stagnant, homogeneous group. There is a significant amount of diversity when it comes to which industries these people work in, and a much higher share of the wealthy Americans in this sample are self-made compared to some European peers.

In their study, David Lincoln from Wealth-X and Jonathan Wai from Duke University use the Wealth-X database to analyze a sample of more than 18,000 ultra high net worth (UHNW) people, which they define as having a net worth greater than $30 million. Their findings help us get beyond the rhetoric to see how the wealthy got to that position.

Compared to some of the European countries most-often cited as models of equity, the United States has a significantly higher share of UHNW people whose wealth is primarily self-made: 75 percent in the United States compared to just 31.3 percent in Sweden, 42.5 percent in Norway, or 43.6 percent in Denmark.

In fact, only 12.6 of the American individuals analyzed derived most of their wealth from inheritance, a lower share than any European country in the sample besides Finland (9.1 percent, but with a much higher share with their primary source of wealth being a mix between inheritance and self-made) and the United Kingdom (12.5 percent).

Unlike the common portrayal, it is the European countries that has a more stagnant and stultified elite class, while the United States has one of the higher shares of self-made men and women in the study’s sample.

There is also a surprising amount of variation when it comes to the industries where UHNW people work. While the highest share is in finance and banking at just over 18 percent, a significant number of the people in the sample work in other industries like real estate, media, or IT services.

The composition of industries has changed over time and will continue to do so. This reflects another way that this group is ever-changing, especially in places like the United States, where there are more opportunities for founders, innovators, and entrepreneurs to reach the highest levels.

Industries for Ultra High Net Worth Individuals

Source: Wai and Lincoln (2016), Appendix G.

Note: Labels excluded for industries with smaller shares due to space constraints. A full list can be found in Appendix G of the paper.

The wealthy people in this sample are not a homogenous group, and there are significant variations when it comes to family composition, political affiliation, generosity, and religion, among other things. UHNW people take a number of different paths to attain their wealth, such as working in media, in manufacturing, or in tech companies. Compared to some of the European countries that are typically viewed as more egalitarian, more UHNW Americans acquired wealth that was self-made. In short, the issue is not as simple as the rhetoric often implies.

My colleague Michael Tanner recently released a paper looking at more of the common myths that surround the discussion of inequality, which can be found here.

An exchange in last night’s debate revealed the deep divide in this country over who should be allowed in the country. Audience member Gorbah Hamed posed a question to Donald Trump:

There are 3.3 million Muslims in the United States, and I’m one of them. You’ve mentioned working with Muslim nations, but with Islamophobia on the rise, how will you help people like me deal with the consequences of being labeled as a threat to the country after the election is over?

Trump responded:

Well, you’re right about Islamophobia, and that’s a shame. But one thing we have to do is we have to make sure that — because there is a problem. I mean, whether we like it or not, and we could be very politically correct, but whether we like it or not, there is a problem. And we have to be sure that Muslims come in and report when they see something going on. When they see hatred going on, they have to report it.

[…]

And [Clinton] won’t even mention [radical Islamic terrorists] and nor will President Obama. He won’t use the term “radical Islamic terrorism.” Now, to solve a problem, you have to be able to state what the problem is or at least say the name. She won’t say the name and President Obama won’t say the name. But the name is there. It’s radical Islamic terror. And before you solve it, you have to say the name.

Moderator Martha Raddatz asked Clinton to respond, and she launched into a predictable critique of the “divisive, dark things said about Muslims” during the campaign and concluding “we’re not at war with Islam.”

Raddatz then turned to Trump and asked him to explain whether his pledge in December to ban all Muslims from coming to the United States was still in effect. “Your running mate [Indiana Governor Mike Pence] said this week that the Muslim ban is no longer your position. Is that correct? And if it is, was it a mistake to have a religious test?”

Trump answered as follows:

The Muslim ban is something that in some form has morphed into a extreme vetting from certain areas of the world….We are going to areas like Syria where they’re coming in by the tens of thousands because of Barack Obama. And Hillary Clinton wants to allow a 550 percent increase over Obama. People are coming into our country like we have no idea who they are, where they are from, what their feelings about our country is, and she wants 550 percent more. This is going to be the great Trojan horse of all time.

We have enough problems in this country. I believe in building safe zones. I believe in having other people pay for them, as an example, the Gulf states, who are not carrying their weight, but they have nothing but money, and take care of people. But I don’t want to have, with all the problems this country has and all of the problems that you see going on, hundreds of thousands of people coming in from Syria when we know nothing about them. We know nothing about their values and we know nothing about their love for our country.

Though Hillary Clinton doesn’t revere the Constitution as much as Trump claims to – she notably didn’t mention respect for the Constitution as a key factor in judging potential Supreme Court nominees (h/t Matthew Feeney) – she presumably interprets Trump’s “extreme vetting” as synonymous with a religious test, which the Constitution explicitly forbids.

In a campaign marked by divisive rhetoric, Trump and Clinton’s answers mainly revealed the very deep chasm separating the people in this country, one that will not be healed after November.

Something striking happened last week: the Obama White House released its Housing Development Toolkit and Obama’s economic advisor, Jason Furman, wrote a follow-on op-ed about land use regulation’s negative consequences. While White House reports tend to be geared toward partisan political objectives, these two publications could have been written by non-partisan economists. Nevertheless, although the honest application of economic theory is welcome, libertarians will still find points of disagreement.

The White House even went so far as to say that “even well-intentioned land use policies” can have negative impacts. So far, so good.

What’s bad? The worst part of the report is the declaration that the President’s 2017 HUD budget includes a $300 million proposal for grants to help cities “modernize their housing regulatory approaches.” Since when does it cost $300 million to reduce regulation, which is all the “modernizing” that needs to be done?

The report also gets it wrong with some of its specific policy prescriptions. In order to increase housing supply, it not only suggests a range of deregulatory measures, but also various reregulations. For instance, the Toolkit recommends that vacant land be taxed at a higher rate, and that local governments require developers to build affordable units in exchange for development approvals.

In this way, the authors fall back into the original trap: they think that city officials know better than private citizens what should be built and where. But if the last century taught us anything, it should have taught us that officials are not more capable of guiding urban development than private citizens are. In fact, that brand of overconfidence is what got us into this housing supply crisis to begin with.

Finally, the authors seemingly approve of states dictating zoning and land use policies to their cities. This mentality overlooks the fact that cities often resort to zoning in order to protect their own interests when they feel threatened by intrusive state policies. Consequently, the worst thing state governments can do is squeeze their cities with more requirements, thereby providing more incentive for cities to assert local control through work-around policies.

So if the state or federal government can’t impose their will on cities, what can be done? If federal and state governments step aside, local community advocacy groups will step in. For example, in San Francisco, one of the most expensive and constrained urban markets, GrowSF and other groups are educating voters, canvassing neighborhoods in support of pro-growth policy, building a political coalition between democrats, conservatives, and libertarians, and filing lawsuits against burdensome regulations. This grassroots approach is how civil society is built, how consensus is built, and where lasting policy change occurs.

Paradoxically, the Toolkit even acknowledges the preeminent role that local preferences should play: “regions are better able to compete in the modern economy when … housing development is allowed to meet local needs” it declares. Who better to determine local needs than property owners and concerned citizens themselves?

The rapid rise of the U.S. trade deficit with China after 1995 is often blamed on China joining the World Trade Organization (WTO) in 2001. But the WTO is a simply a forum for arbitrating trade disputes, not a trade agreement (which must be legislated among countries).

Yet according to Peter Navarro, Trump’s trade adviser, “The defining moment in American economic history is when Bill Clinton lobbied to get China into the World Trade Organization. It was the worst political and economic mistake in American history in the last 100 years… .The problem, right off the bat, was that China had much higher tariffs than everywhere else, so the U.S. and Europe in particular got the short end of that stick.”

In reality, China joining the WTO had zero effect on U.S. tariffs against Chinese imports. But it forced China to lay off 36 million workers in state enterprises, then cut industrial and agricultural tariffs by at least half by 2005 and more by 2010.

U.S. tariffs were unchanged by China’s entry into WTO, remaining 2-3% on a weighted average. Since 1980 the U.S. has extended “normal trade relations” or “Most Favored Nation” status to China – as it does for every other nation but two (Cuba and North Korea). MFN status simply means exemption from the infamous 1930 Smoot-Hawley tariffs, not exemption from the 3670-page U.S. Tariff Schedule.

To be accepted by WTO members (now 164), China had to shut down state industries after 1995 and greatly reduce its tariffs. This was difficult and painful.

In the China Economic Review, Michigan economists John Giles and Albert Park, with Juwei Zhang of the Chinese Academy of Social Sciences, investigated China’s True Unemployment Rate. They found, “China’s … aggressive restructuring led to the layoffs of 45 million workers from 1995 to 2002, including 36 million from the state sector.” If that was about “stealing jobs,” it certainly got off to a bad start.

John Hopkins economists Robert Moffitt and Yingyao Hu, with Shuaizhang Feng of Shanghai University, used detailed regional employment surveys, recently estimated the unemployment rate in China “averaged 3.9% in 1988-1995, when the labor market was highly regulated and dominated by state-owned enterprises, but rose sharply during the period of mass layoff from 1995- 2002, reaching an average of 10.9% … from 2002 to 2009.”

Mass layoffs of 36 million workers at state enterprises were essential, despite the 10.9% unemployment for 8 years after joining WTO. Such bloated tax firms could not possibly survive after China slashed tariffs, letting foreign goods compete. Weighted average Chinese tariffs fell from 32.2% in 1992 to 19.8% in 1996, according World Bank estimates, then to 13.8% in 2000 and 4.6% by 2014.

Exposing socialist enterprises to capital competition eventually paid off in higher productivity, lower costs and rising quality. China’s exports then began to soar in the late 1990s largely as a result of this arduous 1995-2002 preparation for WTO trade standards, rather than from WTO membership per se.

Before joining WTO, China’s exports to the U.S. jumped from $38.8 billion in 1994 to 81.8 billion in 1999 and China’s global exports (in dollars) increased 14.2% a year.

One frequently misquoted source of the mistaken impression that China’s industrial gains were due to WTO membership is “The China Shock” by MIT economist David Autor and his colleagues David Dorn and Gordon Hanson. A Wall Street Journal feature about China Shock said, “Imports from China as a percentage of U.S. economic output doubled within four years of China joining the World Trade Organization in 2001… . By last year, imports from China equaled 2.7% of U.S. gross domestic product.”

That quote may appear to suggest U.S. imports surged after 2001, but it was Chinese imports that exploded. U.S. imports did recover modestly from 13.1% of GDP in the recession of 2001 to 15.5% in 2005, but imports always rise after recessions. Contrast the U.S. cyclical uptick with China’s imports, which jumped spectacularly from 18.3% to 29.2% of GDP in those same years. China’s imports from the U.S. doubled from $24.8 billion in 2001 to $50.6 billion in 2005, before reaching $167.2 billion in 2014.

In 2015 U.S. imports were still 15.5% of GDP – the same as 2005. The fact that China’s share of U.S. imports was up and Japan’s down did not mean the U.S. was importing more – just importing from different countries.

The previous Wall Street Journal quote about what happened “after joining the World Trade Organization” gives the wrong impression that Autor, Dorn and Hanson attribute China’s export growth to joining the WTO. On the contrary, they attribute China’s export growth to proliferation of Special Economic Zones with freer markets. Autor says his study “strongly confirmed” that China’s success was driven by “falling costs and rising quality”.

When talking excitedly about trade deficits and trade deals, both Presidential candidates have been marching voters down a dark dead-end street. Trump and Clinton both claim larger imports or trade deficits are associated with weaker economic growth, which is the opposite of our experience. And both attribute U.S. trade deficits to bad “trade deals” with a few smaller countries (while remaining curiously silent about Germany). Yet the largest trade deficits are with countries with which the U.S. has not yet negotiated any trade agreements.

Before peddling risky solutions to a misperceived trade problem – such as threatening huge tariffs on countries or U.S. companies – the candidates might first take more care to understand, define and explain what problem they are hoping to fix.

In the first Presidential debate, Hillary Clinton and Donald Trump managed to agree on one thing. Unfortunately, they were both wrong.

What they agreed about is that trade deficits are due to “bad trade deals.” Clinton said “we need to have smart, fair trade deals” and “hold people accountable.” Trump said, “We have to renegotiate our trade deals.” Hillary voted against CAFTA, while Trump hates NAFTA. Both dismissed the Trans-Pacific Partnership as just another foolish trade agreement.

The trouble is our largest trade deficits are with countries with which the U.S. has no trade agreements – namely China ($334.1 billion in 2015) and the European Union ($102.9 billion). We also have no trade deal with Japan, which is tied with Mexico for a poor third place ($55-58 billion) far behind Germany ($77.3 billion)

In other words, three of our four biggest trade deficits have nothing to do with trade agreements because such agreements don’t exist. Trump can’t “renegotiate” trade deals that were never negotiated.

The U.S. also has trade surpluses. We ran a $31.7 billion trade surplus with Hong Kong last year, which is obviously part of China. We ran a $6.1 billion surplus with Canada, $10.4 billion with Singapore, $12 billion with the U.K., $30.9 billion with OPEC countries, and $87 billion with South and Central America, plus $28.9 billion with various “other countries.” Although a few trade surplus partners have Free Trade Agreements with the U.S. (Singapore, Canada and CAFTA), it would be incongruous if not ridiculous to attribute both surpluses and deficits to trade agreements.

In short, this entire bipartisan hullabaloo about some alleged link between trade deals and trade deficits is simply false – political fiction.

In 2015, Nevada lawmakers passed the most ambitious educational choice law in the nation: a nearly universal education savings account (ESA) program. The program was scheduled to launch this year, but it immediately drew two separate lawsuits from opponents of educational choice. Last week, the Supreme Court of Nevada upheld the constitutionality of the ESAs, but ruled that the program was improperly funded. Choice opponents were quick to declare that the ESA program is dead, but as Tim Keller of the Institute for Justice noted, the program is only mostly dead, which means it is slightly alive.

Whether the program is fully revived depends entirely on the lawmakers who won plaudits for enacting it in the first place. On Monday, the legislature will meet in a special session to consider whether to subsidize the construction of a football stadium for the Raiders. Fixing the ESA funding would be a much more productive and beneficial use of their time. Sadly, Governor Brian Sandoval announced this week that ESAs would not be on the agenda:

Passage of Education Savings Accounts (ESAs) set a national precedent for school choice and symbolized a significant step toward education equality for every student. I recognize the magnitude of this sweeping policy measure and consider it a major component of the reform package ushered in during the last legislative session. Protecting this program is a top priority for me. There is simply not enough time to add it to next week’s Special Session with full confidence that a rushed outcome will pass constitutional muster.

Instead, the governor is launching a working group to fix the funding issue at a later date and he pledges to include the ESAs in his final budget recommendations for the upcoming biennium. There’s only one problem with this plan: the new legislature next year might not be as supportive of educational choice as the present one. If Gov. Sandoval and legislative leaders fix the funding issue now while they have legislative support for the program, they will cement their legacies in the history of education reform. If they fail to do so and the next legislature blocks efforts to fix the funding issue, their legacy will be a massive squandered opportunity.

There’s no need to roll the dice. There are various constitutional ways the legislature could fix the funding issue through existing or new funding streams while still saving the state money. The state supreme court barred the legislature from diverting funds that it had already committed to meet the basic funding requirements of the district school system, but otherwise left the door open to various funding possibilities.

At the very least, the legislature could fund the accounts via tax credits. As Jonathan Butcher and I described in a report we published earlier this year, the state could offer tax credits to individuals and corporations who donate to nonprofit scholarships organizations that could manage the ESAs, similar to tax-credit scholarship programs already in effect in 17 states. Florida’s ESA program is already managed by the scholarship organizations that participate in the state’s tax-credit scholarship program, and Nevada has a similar tax-credit scholarship program that has been in effect for more than a year.

If the Nevada legislature has the time to waste on subsidizing football stadiums for billionaires at taxpayer expense, then surely they can find the time to fund ESAs for children who want a better education while saving the taxpayers money.

About the Republican Liberty Caucus

The Republican Liberty Caucus is a 527 voluntary grassroots membership organization dedicated to working within the Republican Party to advance the principles of individual rights, limited government and free markets. Founded in 1991, it is the oldest continuously-operating organization within the Liberty Republican movement.